Question Tag: Goal Congruence

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PM – May 2015 – L2 – SB – Q5 – Balanced Scorecard

Evaluate the use of the Balanced Scorecard and analyze investment decisions for Carossi Limited using ROI and RI.

Question

CAROSSI Limited makes quality wooden products such as tables, chairs, benches, and doors. Historically, the company has used mainly financial performance measures to assess the performance of the company as a whole. The company’s Chief Executive Officer has just been informed of the ‘Balanced Scorecard Approach’ and is eager to learn more.

CAROSSI Limited has two Divisions X and Y, each with its own cost and revenue streams. Each Division is managed by a divisional manager who has the power to make all investment decisions within the Division. The cost of capital for both Divisions is 15 percent. Historically, investment decisions have been made by calculating the Return on Investment (ROI) of any opportunities, and presently, the return on investment of each Division is 18 percent.

A recently appointed manager for Division X strongly feels that using Residual Income (RI) to make investment decisions would result in better ‘goal congruence’ throughout the organisation.

Investment Details for Each Division:

	Division X	Division Y
Capital required for investment (₦m)	88.2	46.0
Revenue generated from investment (₦m)	46.4	28.1
Net profit margin (%)	30	35

The company is seeking to maximise shareholders’ wealth.

Required: a. Describe the Balanced Scorecard Approach to performance measurement. (8 Marks)
b. Determine both the return on investment and residual income of the new investment for each of the two divisions. Comment on these results and take into consideration the manager’s views about residual income. (7 Marks)

Answer

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Tags: Balanced Scorecard, Goal Congruence, Investment Appraisal, Residual Income, ROI
Level: Level 2

Topic: Balanced Scorecard
Series: MAY 2015

SCS – May 2021 – L3 – Q8 – Capital structure

Explain the objectives of transfer pricing in SBL and the potential conflict between entity goal congruence and divisional autonomy.

Question

Divisional managers are concerned about SBL’s objective of transfer pricing. As a Business Advisor, explain to the divisional managers the transfer pricing objective of SBL, as it is often in conflict with “entity goal congruence” and “division autonomy.” (10 marks)

Answer

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Tags: Divisional Autonomy, Goal Congruence, Performance Management, Transfer Pricing
Level: Level 3

Series: MAY 2021

PM – Nov 2018 – L2 – Q2c – Transfer Pricing

Explains two key attributes of a good transfer pricing policy.

Question

Explain TWO attributes of a good transfer pricing policy.

Answer

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Tags: Goal Congruence, Performance Evaluation, Policy Attributes, Transfer Pricing
Level: Level 2

Topic: Transfer Pricing
Series: NOV 2018

MA – Nov 2017 – L2 – Q1b – Performance analysis

Identify and explain five areas of relevance for management to ensure short and long-term profitability and survival of corporate institutions.

Question

b) The traditional methods of measuring performance of sub-units to achieve goal congruence include divisional profit, Return on Investment, Residual Income and Transfer pricing. These profit based measures do not reveal all about the long term survival of corporate institutions.

Required: Identify and explain FIVE areas of relevance that should engage the attention of management to ensure both short and long term profitability and survival.

(10 marks)

Answer

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Tags: Goal Congruence, Long-term Survival, Performance Measurement, Profitability, Strategic Management
Level: Level 2

Topic: Performance analysis
Series: NOV 2017

MA – Nov 2018 – L2 – Q1c – Transfer pricing

Discuss the objectives of transfer pricing within multinational companies, focusing on goal congruence and tax optimization.

Question

Intra-group trading within multinationals is trending and is a very important part of business today. This intra-group trade is aimed at promoting global trade competitiveness. Within this competitive environment, companies within the group usually trade with each other and therefore may be required to set fair and arm’s length prices for goods and services. Such prices may give benefits other than the mere value for goods and services.

Required:
Identify and explain THREE (3) objectives of transfer pricing. (6 marks)

Answer

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Tags: Goal Congruence, multinational companies, tax optimization, Transfer Pricing
Level: Level 2

Topic: Transfer Pricing
Series: NOV 2018

MA – May 2019 – L2 – Q1b – Divisional Performance

Evaluate divisional performance using ROI and RI and assess the impact of investment decisions on these metrics.

Question

Ayittey Ltd is an organization with two divisions: A and B, each with its own cost and revenue streams. Each of the two divisions is classified as an Investment center. The company’s cost of capital is 12%. Historically, investment decisions have been made by calculating the return on investment (ROI). A new manager who has recently been appointed in Division A has argued that using residual income (RI) to make investment decisions would result in ‘better goal congruence’ throughout the company. The data below shows the current position of the division as at the end of 31 December, 2016:

Details of Projects	Project A	Project B
Capital required	GH¢ 82.8 million	GH¢ 40.6 million
Sales generated	GH¢ 44.6 million	GH¢ 21.8 million
Net Profit margin	28%	33%

The company is seeking to maximize shareholders’ wealth. Assuming that Division A acquires a more efficient asset at GH¢15 million and Division B sold one of its assets with a written down value of GH¢24 million, and profits are expected to increase and decrease by GH¢11 million and GH¢5 million for Division A and B respectively.

Required:
i) Calculate both the current Return on Investment (ROI) and Residual Income (RI) for each of the divisions. (5 marks)
ii) Calculate and comment on the effect of the decision to invest in the new asset and disposal of some assets on the current ROI and RI. (7 marks)

Answer

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Tags: Divisional Performance, Goal Congruence, Investment Decision, Residual Income, ROI
Level: Level 2

Topic: Divisional Performance
Series: MAY 2019

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

Question

Lamiokor and Zenator are two divisions of Tsorkor group. Lamiokor division manufactures an intermediate product known as component A which has no external market. Zenator division incorporates this intermediate product, component A, into a final product that it sells to external customers. One unit of component A is used in the production of one unit of the final product. Lamiokor has quoted a transfer price of GH¢45 for each unit of component A.

The details of monthly production costs for each division are as follows:

Lamiokor Division:

Variable cost: GH¢15 per Component A
Product Specific Fixed Cost: GH¢50,000 (Incurred only by Lamiokor division and specifically for the production of Component A)

Zenator Division:

Variable cost: GH¢9 per unit
Product Specific Fixed Cost: GH¢75,000 (Cost incurred only by Zenator when converting component A to the final product)

The relationship between monthly external customer demand and selling price of the final product is as follows:

Month	Demand (Units)	Selling price per Unit (GH¢)
1	1,000	120
2	3,000	100
3	4,000	90
4	5,000	80
5	6,000	67

Required:
a) Explain FOUR (4) objectives of transfer pricing.

(4 marks)

b) Based on a transfer price of GH¢45 per component A, prepare the monthly profit statement for:
i) Lamiokor Division (6 marks)
ii) Zenator Division (6 marks)
iii) Tsorkor Group (4 marks)

Answer

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Tags: Divisional Autonomy, Divisional Performance, Goal Congruence, Profit statements, Transfer Pricing
Level: Level 2

Topic: Transfer Pricing
Series: NOV 2021

PM – May 2015 – L2 – SB – Q5 – Balanced Scorecard

Evaluate the use of the Balanced Scorecard and analyze investment decisions for Carossi Limited using ROI and RI.

Question

A recently appointed manager for Division X strongly feels that using Residual Income (RI) to make investment decisions would result in better ‘goal congruence’ throughout the organisation.

Investment Details for Each Division:

	Division X	Division Y
Capital required for investment (₦m)	88.2	46.0
Revenue generated from investment (₦m)	46.4	28.1
Net profit margin (%)	30	35

The company is seeking to maximise shareholders’ wealth.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Balanced Scorecard, Goal Congruence, Investment Appraisal, Residual Income, ROI
Level: Level 2

Topic: Balanced Scorecard
Series: MAY 2015

SCS – May 2021 – L3 – Q8 – Capital structure

Explain the objectives of transfer pricing in SBL and the potential conflict between entity goal congruence and divisional autonomy.

Question

Answer

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Tags: Divisional Autonomy, Goal Congruence, Performance Management, Transfer Pricing
Level: Level 3

Series: MAY 2021

PM – Nov 2018 – L2 – Q2c – Transfer Pricing

Explains two key attributes of a good transfer pricing policy.

Question

Explain TWO attributes of a good transfer pricing policy.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Goal Congruence, Performance Evaluation, Policy Attributes, Transfer Pricing
Level: Level 2

Topic: Transfer Pricing
Series: NOV 2018

MA – Nov 2017 – L2 – Q1b – Performance analysis

Identify and explain five areas of relevance for management to ensure short and long-term profitability and survival of corporate institutions.

Question

Required: Identify and explain FIVE areas of relevance that should engage the attention of management to ensure both short and long term profitability and survival.

(10 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Goal Congruence, Long-term Survival, Performance Measurement, Profitability, Strategic Management
Level: Level 2

Topic: Performance analysis
Series: NOV 2017

MA – Nov 2018 – L2 – Q1c – Transfer pricing

Discuss the objectives of transfer pricing within multinational companies, focusing on goal congruence and tax optimization.

Question

Required:
Identify and explain THREE (3) objectives of transfer pricing. (6 marks)

Answer

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Tags: Goal Congruence, multinational companies, tax optimization, Transfer Pricing
Level: Level 2

Topic: Transfer Pricing
Series: NOV 2018

MA – May 2019 – L2 – Q1b – Divisional Performance

Evaluate divisional performance using ROI and RI and assess the impact of investment decisions on these metrics.

Question

Details of Projects	Project A	Project B
Capital required	GH¢ 82.8 million	GH¢ 40.6 million
Sales generated	GH¢ 44.6 million	GH¢ 21.8 million
Net Profit margin	28%	33%

Answer

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Tags: Divisional Performance, Goal Congruence, Investment Decision, Residual Income, ROI
Level: Level 2

Topic: Divisional Performance
Series: MAY 2019

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

Question

The details of monthly production costs for each division are as follows:

Lamiokor Division:

Variable cost: GH¢15 per Component A
Product Specific Fixed Cost: GH¢50,000 (Incurred only by Lamiokor division and specifically for the production of Component A)

Zenator Division:

Variable cost: GH¢9 per unit
Product Specific Fixed Cost: GH¢75,000 (Cost incurred only by Zenator when converting component A to the final product)

The relationship between monthly external customer demand and selling price of the final product is as follows:

Month	Demand (Units)	Selling price per Unit (GH¢)
1	1,000	120
2	3,000	100
3	4,000	90
4	5,000	80
5	6,000	67

Required:
a) Explain FOUR (4) objectives of transfer pricing.

(4 marks)

b) Based on a transfer price of GH¢45 per component A, prepare the monthly profit statement for:
i) Lamiokor Division (6 marks)
ii) Zenator Division (6 marks)
iii) Tsorkor Group (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Divisional Autonomy, Divisional Performance, Goal Congruence, Profit statements, Transfer Pricing
Level: Level 2

Topic: Transfer Pricing
Series: NOV 2021

Question Tag: Goal Congruence

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PM – May 2015 – L2 – SB – Q5 – Balanced Scorecard

Evaluate the use of the Balanced Scorecard and analyze investment decisions for Carossi Limited using ROI and RI.

SCS – May 2021 – L3 – Q8 – Capital structure

Explain the objectives of transfer pricing in SBL and the potential conflict between entity goal congruence and divisional autonomy.

PM – Nov 2018 – L2 – Q2c – Transfer Pricing

Explains two key attributes of a good transfer pricing policy.

MA – Nov 2017 – L2 – Q1b – Performance analysis

Identify and explain five areas of relevance for management to ensure short and long-term profitability and survival of corporate institutions.

MA – Nov 2018 – L2 – Q1c – Transfer pricing

Discuss the objectives of transfer pricing within multinational companies, focusing on goal congruence and tax optimization.

MA – May 2019 – L2 – Q1b – Divisional Performance

Evaluate divisional performance using ROI and RI and assess the impact of investment decisions on these metrics.

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

PM – May 2015 – L2 – SB – Q5 – Balanced Scorecard

Evaluate the use of the Balanced Scorecard and analyze investment decisions for Carossi Limited using ROI and RI.

SCS – May 2021 – L3 – Q8 – Capital structure

Explain the objectives of transfer pricing in SBL and the potential conflict between entity goal congruence and divisional autonomy.

PM – Nov 2018 – L2 – Q2c – Transfer Pricing

Explains two key attributes of a good transfer pricing policy.

MA – Nov 2017 – L2 – Q1b – Performance analysis

Identify and explain five areas of relevance for management to ensure short and long-term profitability and survival of corporate institutions.

MA – Nov 2018 – L2 – Q1c – Transfer pricing

Discuss the objectives of transfer pricing within multinational companies, focusing on goal congruence and tax optimization.

MA – May 2019 – L2 – Q1b – Divisional Performance

Evaluate divisional performance using ROI and RI and assess the impact of investment decisions on these metrics.

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

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Question Tag: Goal Congruence

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PM – May 2015 – L2 – SB – Q5 – Balanced Scorecard

Evaluate the use of the Balanced Scorecard and analyze investment decisions for Carossi Limited using ROI and RI.

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SCS – May 2021 – L3 – Q8 – Capital structure

Explain the objectives of transfer pricing in SBL and the potential conflict between entity goal congruence and divisional autonomy.

You're reporting an error for "SCS – May 2021 – L3 – Q8 – Capital structure"

PM – Nov 2018 – L2 – Q2c – Transfer Pricing

Explains two key attributes of a good transfer pricing policy.

You're reporting an error for "PM – Nov 2018 – L2 – Q2c – Transfer Pricing"

MA – Nov 2017 – L2 – Q1b – Performance analysis

Identify and explain five areas of relevance for management to ensure short and long-term profitability and survival of corporate institutions.

You're reporting an error for "MA – Nov 2017 – L2 – Q1b – Performance analysis"

MA – Nov 2018 – L2 – Q1c – Transfer pricing

Discuss the objectives of transfer pricing within multinational companies, focusing on goal congruence and tax optimization.

You're reporting an error for "MA – Nov 2018 – L2 – Q1c – Transfer pricing"

MA – May 2019 – L2 – Q1b – Divisional Performance

Evaluate divisional performance using ROI and RI and assess the impact of investment decisions on these metrics.

You're reporting an error for "MA – May 2019 – L2 – Q1b – Divisional Performance"

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

You're reporting an error for "MA – Nov 2021 – L2 – Q1 – Transfer Pricing"

PM – May 2015 – L2 – SB – Q5 – Balanced Scorecard

Evaluate the use of the Balanced Scorecard and analyze investment decisions for Carossi Limited using ROI and RI.

You're reporting an error for "PM – May 2015 – L2 – SB – Q5 – Balanced Scorecard"

SCS – May 2021 – L3 – Q8 – Capital structure

Explain the objectives of transfer pricing in SBL and the potential conflict between entity goal congruence and divisional autonomy.

You're reporting an error for "SCS – May 2021 – L3 – Q8 – Capital structure"

PM – Nov 2018 – L2 – Q2c – Transfer Pricing

Explains two key attributes of a good transfer pricing policy.

You're reporting an error for "PM – Nov 2018 – L2 – Q2c – Transfer Pricing"

MA – Nov 2017 – L2 – Q1b – Performance analysis

Identify and explain five areas of relevance for management to ensure short and long-term profitability and survival of corporate institutions.

You're reporting an error for "MA – Nov 2017 – L2 – Q1b – Performance analysis"

MA – Nov 2018 – L2 – Q1c – Transfer pricing

Discuss the objectives of transfer pricing within multinational companies, focusing on goal congruence and tax optimization.

You're reporting an error for "MA – Nov 2018 – L2 – Q1c – Transfer pricing"

MA – May 2019 – L2 – Q1b – Divisional Performance

Evaluate divisional performance using ROI and RI and assess the impact of investment decisions on these metrics.

You're reporting an error for "MA – May 2019 – L2 – Q1b – Divisional Performance"

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

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